EDITORIAL: State pension fund's offshore foray nothing to do with patriotism
As the custodian of R2-trillion on behalf of government workers, the GEPF has a fiduciary duty to ensure the best outcome for them
Very few people would dispute that maintaining a diversified portfolio is crucial to the success of any long-term investment strategy. In simple language, it’s about spreading your exposure, reducing the risk that your overall performance can be wiped out by unwise choices. While there’s been more than a fair bit of liberalisation since the advent of democracy, most South Africans probably think about asset classes rather than geography when they talk about diversification.
Start talking about moving your savings out of SA and there is a big chance the discussion soon turns to unrelated matters of patriotism and an imaginary conflict with promoting development here at home and the need to mobilise resources for social and economic goals, such as funding infrastructure. Which is not surprising in a country where a disconnect between those with the means to save, and the rest, is such an important feature.
So, when investing overseas comes up, it’s often in the context of capital flight and a lack of faith in SA’s future among the wealthy. Even more so today, with the country in the midst of a recession and the airwaves full of state capture tales and detailed accounts of the depravity of the Zuma presidency.
The Government Employees Pension Fund’s desire to put more of the money that it oversees for state workers in offshore markets should be seen in that context. It’s not about capital flight or patriotism, or a lack of it.
None of this is a good reason to shut down a grown-up debate about the best investment strategy for SA’s workers, one that seeks the best possible returns for savers and a greater pool of professional managers. Even if superior returns didn’t materialise, investors would simply gain from the competition and the resulting downward push in fees, which are often the biggest determinant of whether the end-user has had a good deal.
The concentrated nature of SA’s market poses extra risk for investors, with one company, Naspers, accounting for a fifth of the JSE. That, for example, makes a mockery of the idea that tracking the overall index provides diversity and protects from risks associated with overexposure to single stocks or asset classes. From Steinhoff to the Resilient group and MTN, SA isn’t exactly short of examples of how a highly concentrated portfolio can wipe out savings built over a long period.
There’s of course an argument that South Africans already get plenty of diversification and offshore exposure through mining, banking and other stocks that earn a substantial portion of their earnings from outside the country, some of which have overseas listings. But the fact remains that a fund tracking the JSE will have lost about 3.6% including reinvested dividends so far in 2018, while the MSCI global index has delivered a return of just over 4%. The difference in performance is even more stark over a two-year period, with the JSE earning 13% compared with 32% for the MSCI index.
The Government Employees Pension Fund’s (GEPF) desire to put more of the money that it oversees for state workers in offshore markets should be seen in that context. It’s not about capital flight or patriotism, or a lack of it.
As the custodian of R2-trillion on behalf of government workers, it has a fiduciary duty to ensure the best outcome for them and for taxpayers — who, after all, would be on the hook to fund pensions in the event of the investment returns falling short.
The GEPF has less than 10% of its funds allocated outside of SA, making it one of "the most concentrated pension funds for its size in the world", principal officer Abel Sithole told Business Day. The idea is to invest more in passive strategies among developed markets. It hardly sounds like someone who’s looking to go on a gambling spree using workers’ money.
It’s perhaps a bit of an indictment of how things get done in SA that we can almost be sure that Sithole’s idea of a change in coming months will prove to be wildly optimistic. A good idea that even trade unions aren’t necessarily opposed to, it is more likely to gather dust and get caught up in political infighting and bureaucratic indifference than to actually get off the ground. And the losers will be the workers and the broader SA market, which can do with such a shake-up.